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Dechra Declines on $130 Million Services Unit Sale: London Mover

Dechra Pharmaceuticals Plc fell in London trading after the U.K. maker of veterinary products announced plans to sell its services unit to Patterson Cos. for 87.5 million pounds ($130 million).

The shares declined 6.1 percent to 700 pence, the biggest drop since June 24. The volume of trading was more than 17 times the three-month daily average.

“The disposal is expected to be earnings dilutive in the short term,” Brian White, an analyst at Shore Capital, said in a note to investors. Even so, “this will mark a significant turning point in the company’s transition to a higher margin animal pharmaceutical company.” Shore Capital kept a buy recommendation on the stock.

The disposal will help the company to focus on higher-margin veterinary products and is expected to take place in mid-August, pending shareholder approval, Stoke-on-Trent, England-based Dechra said in a statement today. The unit is composed of National Veterinary Services, Dechra Laboratory Services and Dechra Specialist Laboratories.

Dechra’s revenue rose by about 19 percent in the financial year ended June 30, the company said in a trading update today.

Sebastien Jantet, an analyst at Investec Plc, said that was a “touch below” his estimate. He lowered his earnings per share outlook for the year by about 5 percent today because of the sales figure and “an acceleration of investment into the pipeline.”

The disposal “will be dilutive until Dechra redeploys the proceeds,” Jantet said. Investec lowered its recommendation on the stock to hold from add, with a 12-month target price of 700 pence a share.

Reducing Debt

Dechra will use cash from the disposal to reduce net debt, according to today’s statement. The sale will also provide more resources to develop the pharmaceuticals business organically and via acquisition, the company said.

“Today’s disposal removes the ‘poison pill’ from the group and makes the pure-play veterinary pharmaceutical company more attractive to a bidder,” Savvas Neophytou, an analyst at Panmure Gordon, said in a note. Panmure Gordon raised its recommendation on the stock to buy from hold.

Dechra is scheduled to release preliminary full-year results on Sept. 3.

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